Can Portugal's Economy Boom despite The Curse of The Euro ?

Portugal's economy is not that bad. There are definitely worse economies in Europe. Last year it had 2.4 percent GDP growth. It Grows Above EU Average. Its unemployment had gone down to 7 percent from 20 percent in 2012 when it went through an economic crisis and which is even lower than France’s unemployment. Gdp per capita is 19,000 US dollars, which are higher than most countries in Eastern Europe and even more than double than Russia’s GDP per capita, which is 9,000. The number of millionaires in Portugal in 2017 increased from 61,000 to 68,000. Foreign investment has been increasing. Portugal does have a lot of debt, which is a problem, of course, and there are still problems, but things are getting better there and slowly improving. But minimum wages are the lowest in western Europe with about 600 euros a month. Portugal is known as a popular destination for people from all over the world. It is ranked as the most peaceful country in the EU and the 3rd in the world. Lisbon went from being overlooked to overbooked in a matter of a few years. Welcome to The Atlantis Report. Although Portugal was on the brink of bankruptcy throughout the financial crisis from 2008 to 2010, today, the tide has turned. And Portugal is experiencing an economic revival. Portugal was able to bring back their economy all by removing Austerity Measures imposed by the EU. Unemployment rates have decreased, while the public deficit has fallen to its lowest point in more than 40 years. The Portuguese economy is even booming at the moment. In fact, the Portuguese Prime Minister has called for all of the Portuguese immigrant that have left the country in the last decade or so to come back. And he is offering them a lot of incentives to get them to come back, like tax rebates, cheap loans if you start a business, and other advantages. Portugal’s economy, along with that of its neighbor Spain, is among the fastest-growing in Europe at this point. Portugal was one of the so-called PIIGS - Portugal, Ireland, Italy, Greece & Spain. These countries have a couple of things in common. They are not small economies, but neither are they large, robust, or particularly diversified. At the time of the European Union’s formation, their citizens received, in hindsight, an inappropriate benefit (economically speaking) in that they were now able to borrow at “European” rates, which were much lower than their previous “stand-alone” rates. Truth is though that those previous rates were probably a better indication of the risk of those economies. So the Portuguese did what any rational economic actor would do when presented an underpriced opportunity — they borrowed to high heaven. Mortgage rates were not only much cheaper, but they could now borrow for much longer than previously. So they did — and housing prices rose to bubble levels. They also radically increased consumer spending. Portuguese companies got in on the action too. So did the government and municipalities. This all came home to roost during the global financial crisis beginning in about 2007. They had many of the same issues as the US — upside-down mortgages, over-leverage, and increases in rates as teaser periods ended. So, the entire country was in a bit of turmoil. And not being a vast and robust economy like the US, their pain was more severe. But over the past few years, Portugal and these other counties have climbed out of that hole and are now among the fastest-growing economies internationally. Portugal is a middle to the high-income economy per capita. This means that the country is included in the group of developed countries. Its economy is mainly based on the tertiary sector, with tourism being vital in the country’s economy. This also means that Portugal is highly dependent on external flows of tourists arriving in the country. Its industry is very diversified, but the sector represents only 21.5% of its GDP, with its long term tendency being to lose significance. The goods produced are mainly composed of semi-processed goods (textiles, cloths, wood and derivatives, chemicals, etc.) and some highly processed (cars, telecommunications, and other technologies). Agriculture only represents 2.4%, with a slight growth in the last years after a long time of constant decrease. Its inclusion in the European Union in 1986 meant a huge transformation in its economic structure, mainly with the abandonment of many of its industries and agricultural production. Since then, the tertiary sector, with tourism on top, is the main bet. Several years of EU integration have provoked a negative flow of capital from the country, even when considered the many subsidies provided. Mainly through debt, relocation of industries, inability to compete with stronger economies in a free-trade Europe, outflows of capital from FDI, etc. The tendency was severely increased after the adoption of the Euro as currency. This currency, which is too valuable for the country’s economy, made its economy stagnate since its adoption in 2002 (average growth around 0% in the period 2002–2015), a decrease in the net barter terms of trade along this period, a stagnation in exports (only inverted in recent years) and a strong increase in imports. Public debt went from 56.2% of GDP in 2002 to 129% in 2015. Constant government deficits throughout the years, along with doubtful government spending in many areas, corresponded to strong growth of external public debt, which after the 2008 crisis, provoked a deep economic crisis in Portugal. In 2011 the government allowed and intervention by the IMF, European Central Bank, and the European Commission, which meant a deep social crisis in the country, many privatizations, a growth in the debt from 111.4% in 2011 to 130% . In the near/ middle future, nothing will change much, continuing to be in a constant state of economic crisis and near default situation. Something that it’s structural and inherent to Portugal’s position in the world economy. Any analysis of Portugal’s economy cannot be made focusing on single events but on a long-term and systemic perspective. So the state of its economy it’s not the result of a single event or a single government but from a succession of events (mainly external, but also internal) and governments. Although the Portuguese Economy is beginning to see some movement, for the ordinary person in the street, things are still very rough. On the plus side. 1) Exports of goods and services are consistently up month on month, with the odd exception. 2) The Tourism service sector had a surprisingly good summer mainly owing to the arrival of unexpected volumes of Spanish and French visitors, on top of the normal hordes of British, Irish, German, and Dutch tourists. On the negative side. 1) Public spending is still far too high, as is Government debt. Despite exhortations from the "Troika" (IMF/EU/ECB), many of the repeated Government efforts to implement cuts in the Public Sector have been blocked by the Constitutional Court. The result is the Government has had to cut spending in areas where it is needed, such as low-income, education, and business start-up support. 2) Conversely, taxes are very high. VAT at 23% with a low kick-in threshold and high excise duties on energy are not making the country very attractive to investors. 3) The crisis has also resulted in a substantial emigration of Portuguese between the ages of 20 and 40. Owing to the fact that many Portuguese are natural polyglots and also have family links in countries such as Luxembourg, Germany, France, and Switzerland, many have taken this option. Top talent has also moved to Brasil, Angola. And latterly, Mozambique, where expanding economies are demanding highly qualified, Portuguese, and English speaking workers. As a result, there is a much smaller pool of talent available locally. Some possible remedies to really kickstart the Portuguese economy include: 1) A constitutional conference to review and modify the 1976 Constitution to take into account the realities of the 21st Century. This should include a measure to increase the Government's capacity to manage the Public Sector and Private Sector workforces. 2) Reduce the burden on one-person, micro, and small businesses by lifting the VAT kick-in threshold from € 10 000 to € 30 000 per year. 3) Reduce bureaucracy. Much has been done in recent years in this area, but the botched implementation of the 2011 introduction of electronic tolls on certain motorways is an example of what often happens here owing to a lack of project planning. The truth is that Portugal, due to various factors like massive welfare, public servers, abusive use of benefits, and misused communitarian funds, has a heavy State and Government machine, with huge expense, that successive administrations tend to compensate with increasing taxes. Just for instance, VAT (tax over purchases) is gone from 16% to 17% in 2000, 19% in 2001, 21% in 2005, 20% in 2009, 23% in 2010, remaining that way to the present date. Increasing taxes along with heavy regulation on activities from the European Union and an economy tremendously intervened by the State make it hard to stimulate an economy that depends much on what small and medium corporations can do. The absence of many big corporates also doesn't help, and many foreign multinationals (like carmakers) have left in the meanwhile, which obviously doesn't help. Being a socialist country means that: The politicians buy votes by wasting money wrongly. The unions are very strong and important in Portugal. And there are way too many public employees. The taxes are huge. There are WAY too many regulations. Too many big companies are still owned by the government . Too many sectors are regulated: water and electricity distribution, for example, are state monopolies. And finally, the biggest problem is bureaucracy, bureaucracy, bureaucracy everywhere. Public debt in Portugal is not sustained by it's GDP, meaning that when you factor in the dependence on family consumption to leverage GDP, it leaves a little margin to escape external influence, such as a crisis like the one in 2007 where the financial sector stopped financing families for their spending. Portugal is mostly a services country, meaning that it relies heavily on public spending and private consumption to increase GDP...given the lackluster industry and not big enough surplus on the current balance, it will only be a matter of time when all of this "growth" comes back to bite Portugal in the ass,again! Healthcare is not free in Portugal, you have to pay for it. It’s a small sum, thanks to the taxas moderadoras, but you still have to pay. Since Portugal joined the Euro, its economy stopped growing along with other Southern European regions. Germany and Holland were the only economies that have benefited from the Euro as the Euro is technically speaking the Deutch mark. Greece tried to leave the Euro, but Germany and the technocrats wouldn’t have it! The European Union is in a mess because of the Euro. How can you run an economy without the control of monetary policy? With the exit of the UK from the EU, I believe Germany won’t be able to control Europe, and they will exit from the Euro. It will be the best thing that will happen to almost all Europeans, not just Portuguese. It about time. All economies start growing again. This was The Atlantis Report. Please Like. Share. And Subscribe. Thank You.










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